I guess its bye bye to High Banking Salaries

Goldman, Morgan to Become Full-Fledged Banks

"The move fundamentally changes one of the mainstay models of modern Wall Street, the independent investment bank, soon after the federal government unveiled the biggest market intervention since the New Deal. It heralds new regulations and supervision of previously lightly regulated investment banks, as well as an end to the outsized paychecks that underpinned the traditional image of the chest-thumping Wall Street banker."

 

Here is another excerpt from the NY times regrading your post.

"The dangling carrot for the junior-level investment banker is the long-term potential. As you slither up the banking ladder, salaries increase astronomically."

"You pay your dues to reap these rewards: Pull back-to-back all-nighters without complaining, and you too shall achieve the Banker Dream."

"So when I watched the newscasts last week of young Lehman employees lugging their cardboard boxes out of their offices, I felt enormous sympathy. They had slogged through the worst part of banking without seeing much of the upside. They won't rise through the ranks the promised way -- keep your head down, resist the urge to throw yourself out the window, and everything will work out just fine."

 

I'm fairly certain compensation will change drastically. When the entire structure of the firm changes, I think it will be likely that compensation changes too. Also, like someone mentioned above, 100 hour long weeks won't work anymore if compensation isn't there. So what's going to be different? Fewer deals? More outsourcing? S&T is bound to be hit harder than m&a, dcm etc. Trading capitals will probably go down, and so will principal investing and lending by banks. I think by the end of this, hedge funds and pe will take a serious blow.

 

Bottom line, if you don't pay junior bankers the salary expected (ESPECIALLY in New York), they WILL NOT work those 100+hour weeks. It just doesn't make economic sense to do that. They have to keep pay relatively high for corp fin junior bankers. I'm not sure where they will cut wage expenses, but if you cut pay for analysts, then you will most likely end up with overall lower quality candidates who are not the "top quality" talent that banks previously had access to. I don't see this happening, but who knows in this kind of world right now.

 

I really don't get how this will change pay in the slightest? Sure, focussing more on the wholesale/retail side than the proprietary means the overall average comp will go down, but for those in front office S&T / Corp Finance will it really? All the equity, bond, interest rate, FX, commodity desks in S&T should be doing the same amount of work and generally generating the same kind of revenues as they historically have done. Banks with massive retail arms such as Citi always pay their front office nearly as / as well as Goldman, Morgan, Merrill counterparts. Why would bonuses go down??

=== 23yr old Associate

=== 23yr old Associate
 

in this market, anyone that has a job should be happy they still have one.

just because you probably won't get the bonus that is 50-100% of your base does not mean that analysts will not want to do banking.

the exit opps into PE & HF will still be there. and those opportunities will continue to pay outsized paychecks.

besides majority of the work has started being outsourced anyway.

if an MD gives a mark up to his presentation center at 8 pm, they'll usually send it to their operators in mumbai or bangalore who take care of it and have it ready by the time the MD strolls in around 8:45.

I've seen comps being taken care of by Capital IQ and other outsourcing companies.

As far as building out full fledged models, well we'll still have associates and I'm sure their paychecks will still be large but maybe with a large stock option portion.

in the end, if college grads don't want to work 80-100 hrs/week in banking for say 70-80K a year with a 10-15K year end bonus, its not really a loss to the investment bank. They can just outsource majority of the work anyway.

its not like the analysts are really going to be balling out with bonuses this year anyway.

------------ I'm making it up as I go along.
 

ha ha ha ha ha. Goldman has no clue how horribly they just fucked themselves. They just lost their claim to top talent. Anyone who is smart will go to PE or a HF straight out of college. Peoples balls will seriously shrink when they are staring down at a bonus check that's less than fifty grand.

 
Best Response

I'm surprised: I figured most people here would say that it wouldn't make a huge difference. Anyone saying that if bonus checks get cut in half from here on out the analyst spots won't be filled...I think is just wrong. This is all just speculation, let me know what you guys think.
1. There are plenty of people gunning for these positions for reasons beyond just the pay. The fact that the saving graces of a bonus may turn away some does not mean there won't be a line of other hungry analysts looking for a front office position to put on their resume. Or that God forbid, genuinely want to enter the business and stay.

  1. Assuming the labor market for educated college kids is fairly efficient, I'd like to believe that people understand banking will still provide good exit opportunities. Even if you barely break even for two years in banking, you still have PE/HF (perhaps the big assumption being these fields will still pay very well)
 

Exactly. For example, MS is talking about reducing leverage from ~20X to somewhere between 10 and 15X. Even a 25% leverage cut would lead to significant compensation changes.

Edit: For reference, AIG was leveraged at 11X.

 
TalibKweli:
Exactly. For example, MS is talking about reducing leverage from ~20X to somewhere between 10 and 15X. Even a 25% leverage cut would lead to significant compensation changes.

Edit: For reference, AIG was leveraged at 11X.

Some of the bigger banks that haven't seen huge writedowns like Credit Suisse shouldn't see -enormous- deleveraging? And surely only things like the prop trading desks and prime brokerage services rely heavily on leverage - sales and research doesn't really? So there should be quite a few desks which don't see an enormous paycut surely?

=== 23yr old Associate

=== 23yr old Associate
 
Salam Shpekov:
Ummm comp is related to ROE. GS and MS will pay their bankers with their ROE and the commercial banks' employees with the other ROE. Simple as that. Pay will not be affected. Yet another shining example of how very few people here actually work in the industry

And there you have it. Someone who actually knows what they're talking about.

 

Question: Are you simply assuming that the additional deposit base of cash will dilute the leverage to an acceptable level in the eyes of regulators? I find this highly unlikely considering the existing size of both banking and trading operation. I see no way that their bonuses will come out of this unscathed.

 

Ummm comp is related to ROE. GS and MS will pay their bankers with their ROE and the commercial banks' employees with the other ROE. Simple as that. Pay will not be affected.

Doesn't this all depend on how much of the fall in leverage of the banks is due to new capital and how much of it is due to selling off assets/ borrowing less and therefore taking smaller positions?

 
managinganalyst:
THANK you...someone knows what they're talking about finally. Plenty of banks ALREADY combine the ibank/commerical bank model (i don't know, Citi, JPM, hello??) and bankers at citi and jpm earn the same as their counterparts at Morgan Stanley.
OK this is exactly what I thought, but apparantly not. I just rung up our Banks analyst. He said even the most conservative of the big wholesale banks which haven't seen huge writedowns (CS, DB, JPM etc) will be deleveraging to the tune of hundreds of BILLIONS of dollars post this 07-08 crisis. So all in all expect bonuses maybe 75% of what they once were, as a complete guesstimate - still multiple times what you can get in any other job so I'm not complaining..

=== 23yr old Associate

=== 23yr old Associate
 
Kuka:
managinganalyst:
THANK you...someone knows what they're talking about finally. Plenty of banks ALREADY combine the ibank/commerical bank model (i don't know, Citi, JPM, hello??) and bankers at citi and jpm earn the same as their counterparts at Morgan Stanley.
OK this is exactly what I thought, but apparantly not. I just rung up our Banks analyst. He said even the most conservative of the big wholesale banks which haven't seen huge writedowns (CS, DB, JPM etc) will be deleveraging to the tune of hundreds of BILLIONS of dollars post this 07-08 crisis. So all in all expect bonuses maybe 75% of what they once were, as a complete guesstimate - still multiple times what you can get in any other job so I'm not complaining..

=== 23yr old Associate

ISn't this a short term event only? Yes, bonuses will be low because of the crisis, but long term, the compensation fundamentals should remain unchanged

 

bonuses might go down in the short term--in the long term, compensation will be related to what it's always been related to, the ability of each employee to bring in revenue. so in corp fin, over the long term pay will stay the same (assuming deal flow does) because otherwise the MDs who bring in 100 mm of revenue off 10 bn of dealflow will leave to go somewhere else where they'll bring in the same amount of revenue (think boutiques or whatever).

in S&T, the loss of leverage could have a bigger effect--if the lower leverage means that S&T desks bring in lower trading revenues, then MD comp in those areas will go down.

 

I completely agree that deleveraging/increased regulation will put a damper on firms' earnings, but as many have mentioned above, I don't see how this will affect comp for corporate finance. The corporate finance divisions should have relatively unchanged revenues moving forward and thus with the exception of this year, comp shouldn't change very much at all. S&T on the other hand seems more likely to take a big hit. Then again my opinion may be somewhat biased because I'm already looking forward to getting a fat bonus check in the summer of 2010...

 
golfer0509:
The corporate finance divisions should have relatively unchanged revenues moving forward and thus with the exception of this year, comp shouldn't change very much at all.

Lots of pitching going on right now. With the credit markets this tight, no one is too anxious to go out and make a big acquisition. The cost of raising capital in this market is high, so a lot of companies are just sitting tight. Corp fin Revenues will be significantly lower until this recession is over.

 

Continue on with your delusions of grandeur and cognitive dissonance but you clowns are compensated based on a combination of profit margin, Asset Management, and financial leverage. All three of these things are either impaired or have been adversely affected by things that occurred over the past year. My original point is that leverage is an integral driver of ROE.

How can comp remain the same when you have down 1/3 of the deals that you completed in 06-07? You are completely dellusional and simply trying to rationalize working 100 hours for a smaller bonsus. Now go format a pitch book or spread me some comps or you will get bottom bucket this year.

 

Well, there is an argument for fewer of these "great" exit options in PE/HF. Given the current state of the credit markets, it seems pretty unlikely that PE/HF funds will be able raise the level of capital they did in the past. Consequently, the number of PE/HF in operation, and the number of PE/HF jobs should go down. Plus, you have to keep in the mind the number of actually successful funds is not that great.

 

...leverage is going down, regulation is increasing, which means profits are going down which means pay is going down, across the board. Of course people can still get rich on wall st. but it will be harder and fewer will. We have lived thru an era where even numbskulls could get rich just for showing up and those days are over. And the idea that banks wont be able to recruit people is laughable. Thousands of people clamor for the privilege of sitting in front of a screen for 20 hours a day and it has very little to do with pay. And just so you know the hedge fund and PE indisties have also contracted massively this year so jobs arent going to be waiting for kids out of college who dont want to work at GS or MS. Face facts: the golden age is over, if you want to make it you will have to work that much harder and work that much smarter.

 
ghosht:
it is a time consuming process involving compliance. you cant just 'ring up' an analyst and ask him questions.
I'm in Banking: Corporate Broking.. I speak to CEO/CFO/IRs, research analysts and M&A slaves on a daily basis.

=== 23yr old Associate

=== 23yr old Associate
 

Isn't this being blown completely out of proportion?

There have been lulls before, head counts drop, bonuses fall for a few years. They won't fall everywhere. They will pick up in time. There will be another upside. It's a cycle.

How come every time we hit a high, everyone says that it's different this time. Then when we hit a low, it's different this time.

It's not different. It's the same.

 

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